General Mills’ Acquisition of Pillsbury from Diageo PLC General Mills is a major manufacturer and marketer of consumer foods in US. On December 8, 2000 the management of General Mill purposed to acquire Pillsbury from Diageo in order to create more value from earning growth. This deal required General Mills to issue new common share to exchange for Pillsbury. If the deal was executed, Diageo would become the largest shareholder for General Mills with 33% share holding. This acquisition would lead Diageo to obtain 141 million shares of the General Mills’ common stock and $5.142 billion debt from Pillsbury. However, as General Mills would like to submit the proposed deal of $10.00 billion but Diageo required the price of $10.50 billion. Therefore, in order to connect the difference in this position, both companies came up with the agreement upon the contingent payment which the transaction relied on General Mills’ stock price.

1. What are General Mills’ motives for this deal? Please estimate the present value of the expected cost savings. The reasons and benefits of General Mills from acquisition of Pillsbury are as the following;  Since the business of GM was in the mature period with slow growth, GM must diversify its offerings and enlarge its product portfolio to reach new customers and tap into new thriving food market. The acquisition would allow GM to break into new and fast-growing food categories that complement its existing product portfolio. The growth of rivals also motivated GM to increase its expansion efforts in order to remain as a market leader and survive against intense competition within the market. They could also improve their supply-chain and distribution power through the big retailer and supermarket such as Wal-Mart and K-Mart, resulting in synergy effect from the acquisition. GM and Pillsbury could develop and grow faster together from the